1/19/2009 @ 3:00AM

Preparing For The Rebound

The hot topic in Silicon Valley these days isn’t about the next big thing. It isn’t even who’s going to run
Apple
or how much money companies can save by going green. It’s about where the bottom is for the current economic downturn.

There’s good reason for this kind of speculation, too. The word across the tech industry is that once we reach bottom and begin climbing back, there’s going to be a scramble for acquisitions because of the amazingly affordable prices the drop in stock will have provided. The market cap of some companies has dipped lower over the past month than the total cash reserves on hand, meaning some companies have been trading on a negative cash basis. The cash they have stockpiled is worth more than the total company, so an acquisition in that case actually could be profitable to the company that buys them.

There are all sorts of caveats, of course. A company has to be willing to be acquired, and there are costs associated with acquisitions, such as legal fees. But it’s bargain-hunting time across the tech industry, and a lot of companies with cash–tech companies, venture capitalists and private equity investors–are now figuring out what they want to acquire and when. Some of this capital may come from non-U.S. investors or companies looking to extend their reach into more established markets.

All of this has tech executives talking about what needs to be done and how the landscape will change. One of the more thought-provoking comments I’ve heard recently came from Rajeev Madhavan, CEO of
Magma Design Automation
, which makes software to develop semiconductors. He said after talking to customers around the globe, he’s convinced they will not look the same as before the downturn started. In many cases, the customer base may not even consist of the same companies. He said the PC could well be replaced by the smartphone as the platform of choice, and that the focus of many companies will be in new industries such as electric cars and green technology.

When companies come out of the downturn, they may have to do more to differentiate themselves than when they went into it. As Jim Hogan, longtime Silicon Valley venture capitalist, put it, “We have to think differently.” Companies with cash already have begun looking at ways to redefine themselves so they stand out from the pack.

For CIOs, this is a chance to rethink what their organizations will look like after the downturn ends, even if they don’t have the budget to fund all the changes up front. Will they centralize data or distribute it? Will they ditch PCs and have their employees use smartphones for computing? And probably even more importantly, do they have a strategy going forward that is flexible enough to incorporate changes they may not expect?

Each CIO needs a clear vision of where his company is going and how to best implement its needs, while simultaneously cleaning up the clutter and mess that decades of outdated technology have left behind. Those are tough challenges to meet, but the companies that will be most competitive coming out of the downturn will be those that are developing a plan in the midst of it.

Given all of that, it’s good to know where the bottom is in this financial mess, because it dictates just how much time you have left in your planning cycle.